Home prices cooled across the world in the last quarter of 2018, but higher interest rates in Canada have made the country’s housing market more vulnerable than other economies, according to HSBC’s latest report.

The tightening of monetary policy in Canada over the past two years has added about one percentage point to household debt-servicing costs, which means that households need to allocate a bigger portion of their income to pay for mortgages or credit card loans, HSBC’s economists said. Debt-service charges in the country are currently near historic highs.

“As the Bank of Canada started to raise rates in mid-2017, households and the housing market face financial challenges through mid-2019 and beyond,” economists James Pomeroy, Paul Bloxham, and David Watt said in the report.

On the other hand, the country’s robust job market, which grew by 3.1% in the first quarter of the year, the second highest after Spain’s 3.2% growth, is shielding the housing market from further declines. However, the report warned that situation might not last, according to South China Morning Post.

“It usually takes about two years for interest rate increases to begin to affect arrears. So long as the job market remains strong, we would only expect any increase in arrears to be quite small. That said, the low arrears rate might not give a reliable measure of the financial situation of the household sector,” the report said. “Amid anecdotal evidence that a rising number of households are facing financial constraints, we see the housing sector as facing a precarious [challenge] in coming months.”

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